US opposes UK's debt relief plan

The US restated its opposition today to Gordon Brown's plan to set up a multi-billion dollar aid facility as finance ministers from the G7 countries gathered in London.

Mr Brown is using the London meeting to drum up support for an international finance facility (IFF) that would double annual aid flows to $100bn (£53bn) by selling bonds on the world's capital markets.

Britain has secured the backing of the three other European members of the G7 - Germany, France and Italy - but the US has declined to do the same. Prior to the two-day meeting of finance ministers, it bluntly restated its opposition to the idea.

"Not only does the IFF not work for the United States, we don't need the IFF," John Taylor, the US treasury under-secretary, said as he travelled to the meeting, which was to be addressed by Nelson Mandela.

Mr Taylor said Washington was not convinced of the need to revalue the gold reserves of the International Monetary Fund or raise money through IMF gold sales to help fund a write-off of Africa's foreign debts.

The US has raised three key objections to the IFF. The first is that the idea of selling bonds on capital markets to double aid over the next 10 years is a non-starter, because one Congress cannot limit the freedom of action of a future Congress.

The second is that Congress would be unwilling, in any case, to vote for more money and the third is a concern that any financial help might not be widely used.

However, the Treasury appeared unruffled by Mr Taylor's remarks.

"There is nothing new in John Taylor's position, but let's talk to the Americans about what we can do to make it work and to look at alternative proposals. The critical thing is to move quickly to meet the UN millennium development goals [on reducing poverty]. To meet those goals, we need to increase aid flows now," a Treasury official said.

According to the Jubilee Debt Campaign, a lobby group that advocates debt cancellation, poor countries around the world spend more than £30m every day on debt repayments to rich countries for loans taken in the 1960s and 1970s.

G7 meetings usually focus on issues such as currency volatility and global economic prospects, but Britain, the G7 president, has put debt relief at the top of the agenda this time.

Peter Mandelson, the EU trade commissioner, called on the G8 - the G7 plus Russia - to offer tariff-free access to all their markets to developing countries within a couple of years.

"Trade is the third leg of the development triad. Actions on trade, aid and debt need to complement each other. To that table, the EU can bring a trade policy that recognises the needs of the global poor," <Mr Mandelson said in a lecture at the London School of Economics..

The prospects of making headway with the US over the IFF this weekend were always slim. With the US treasury secretary, John Snow, unwell, Mr Taylor - attending in his place - does not have the authority to commit the US to any major change in its current position.

China's currency link to the dollar is of more concern to the US, which wants China to allow its currency, the renminbi, to rise and so help make a dent in the US's huge current account deficit.

Mr Taylor said he expected a candid discussion with China on its foreign exchange rate regime, and said it wanted the Asian nation to "move as quickly as possible to a flexible exchange rate". However, China has so far dug in its heels.

"We cannot just consider our bilateral trade surplus with the US - we have to consider our trade surplus with the rest of the world," Zhou Xiaochuan, the governor of the People's Bank of China, said.

The G7 ministers have invited their counterparts from China, India, Brazil and South Africa to the talks in an attempt to give the forum wider reach and legitimacy.

The dollar has been sliding for several years, and hit a low against the euro in December. It has since recovered, easing pressure on G7 ministers to take action.

They are expected to repeat a statement issued a year ago in Boca Raton, Florida, which said they did not want excessive volatility in currency markets and wanted more flexible currency regimes.